China is another East India company. Agree/Disagree; if yes then why & if no then Why?

It's a good question and more likely to be repeated in different exams. In my own point of view, China and East India (EIC) Company has no comparison at all. The British East India Company was perhaps the biggest drug trafficker of all time. On the other hand, China has complex investment system unlike that of western world. Before we embark upon a long journey to discuss the difference between the two, we should have a little knowledge about them. There are two parts of this question. We will start by looking at the EIC first and Chinese Investment around the world in second post followed by this one.

East India Company

East India Company, also called English East India Company, formally (1600–1708) Governor and Company of Merchants of London Trading into the East Indies, or (1708–1873) United Company of Merchants of England Trading to the East Indies, English company formed for the exploitation of trade with East and Southeast Asia and India, incorporated by royal charter on December 31, 1600. Starting as a monopolistic trading body, the company became involved in politics and acted as an agent of British imperialism in India from the early 18th century to the mid-19th century. In addition, the activities of the company in China in the 19th century served as a catalyst for the expansion of British influence there.

Beginning in the early 1620s, the East India Company began using slave labour and transporting enslaved people to its facilities in Southeast Asia and India as well as to the island of St. Helena in the Atlantic Ocean, west of Angola. Although some of those enslaved by the company came from Indonesia and West Africa, the majority came from East Africa—from Mozambique or especially from Madagascar—and were primarily transported to the company’s holdings in India and Indonesia. Large-scale transportation of slaves by the company was prevalent from the 1730s to the early 1750s and ended in the 1770s.

After the mid-18th century the cotton-goods trade declined, while tea became an important import from China. Beginning in the early 19th century, the company financed the tea trade with illegal opium exports to China. Chinese opposition to that trade precipitated the first Opium War (1839–42), which resulted in a Chinese defeat and the expansion of British trading privileges; a second conflict, often called the Arrow War (1856–60), brought increased trading rights for Europeans.

The original company faced opposition to its monopoly, which led to the establishment of a rival company and the fusion (1708) of the two as the United Company of Merchants of England trading to the East Indies. The United Company was organized into a court of 24 directors who worked through committees. They were elected annually by the Court of Proprietors, or shareholders. When the company acquired control of Bengal in 1757, Indian policy was until 1773 influenced by shareholders’ meetings, where votes could be bought by the purchase of shares. That arrangement led to government intervention. The Regulating Act (1773) and William Pitt the Younger’s India Act (1784) established government control of political policy through a regulatory board responsible to Parliament. Thereafter the company gradually lost both commercial and political control. Its commercial monopoly was broken in 1813, and from 1834 it was merely a managing agency for the British government of India. It was deprived of that role after the Indian Mutiny (1857), and it ceased to exist as a legal entity in 1873.

The British East India Company was perhaps the biggest drug trafficker of all time.


By 1690, the Company had trading centres (known as 'factories') all along the West and East coasts of India. The main centres were at Madras, Calcutta and Bombay.

From China, the Company bought tea, silk and porcelain. The Chinese wanted silver in return. Over the next 100 years tea became a very popular drink in England, and there was a fear that too much silver was leaving the country to pay for it. To stop this happening, the Company became involved in a triangular trade by smuggling opium (a highly addictive and illegal drug) from India into China.

The Company grew opium in India. They were looking for something that the Chinese would accept instead of silver, to pay for the goods they bought at Canton. Opium was a valued medicine which could deaden pain, assist sleep and reduce stress. But it was also seriously addictive and millions Chinese became dependent on the drug.

Although opium smoking was a subject of fascinated horror for Europeans, the Company actually encouraged people to use the drug in China - sale of opium was extremely lucrative. As a result, millions of Chinese would die from opium addiction, and the very fabric of Chinese society was threatened.

After the Company's trade monopoly was abolished in 1834, smuggling of opium into China by European private traders intensified. The Chinese state was deeply disturbed at this and threatened force. Britain was prepared to defend 'free trade' and, in 1840, they went to war. These 'Opium wars' led to a humiliating defeat of the Chinese and a trade treaty which ceded Hong Kong to the British

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“What we need in this country today is more courage and more belief in the things that we have.”- Thomas J. Watson

Why is China investing in Africa?

Here are five of the most dangerous — and persistent — myths about Chinese engagement in Africa that are reliably recycled by the press.

The first — and most damaging — myth is that China is in Africa only to extract natural resources. There is no question that the continent’s vast natural resource endowments are a big draw for Chinese firms — just as they are for Western oil and minerals giants like Shell, ExxonMobil, and Glencore. Yet even in oil-rich countries like Nigeria, this is far from the whole story. In 2014 alone, Chinese companies signed over $70 billion in construction contracts in Africa that will yield vital infrastructure, provide jobs, and boost the skill set of the local workforce.

A second myth centers around the extent of Chinese involvement on the continent. Observers often dramatically overstate the scope of Chinese official finance — loans and aid — pledged to Africa and other developing countries. Granted, the Chinese are not terribly transparent about these financial flows. Whereas members of the Organisation for Economic Co-operation and Development (OECD), which consists mainly of developed states, report their annual, country-level commitments of loans and aid, the Chinese do not. Beijing does, however, publish aggregate figures every few years — and they are lower than some of the breathless reporting would suggest. Between 2010 and 2012, Chinese official aid grew rapidly, but the total over those three years came to just $14.4 billion globally.

A third persistent myth is that Chinese companies employ mainly their own nationals. Last July, when President Barack Obama told a group of African ambassadors in Ethiopia that “economic relationships can’t simply be about building countries’ infrastructure with foreign labor,” everyone knew he was pointing the finger at China. But was this an accurate description of Chinese business practices? In a small group of oil-rich countries with expensive construction sectors — including Algeria, Equatorial Guinea, and Angola — governments do allow Chinese construction firms to import their own workers from China. But elsewhere in Africa, the research is clear: The vast majority of employees at Chinese firms are local hires. Hong Kong-based academics Barry Sautman and Yan Hairong surveyed 400 Chinese companies operating in over 40 African countries. They found that while management and senior technical positions tended to remain Chinese, more than 80 percent of workers were local. Some companies had localized as much as 99 percent of their workforces.

Our own research in Ethiopia found that nearly 4,800 Ethiopians were employed by the Chinese firm that built Ethiopia’s urban light rail project. Another 4,000 Ethiopians worked at Huajian, a Chinese shoe factory close to the capital of Addis Ababa.

A fourth myth that won’t go away is that Chinese aid and financing is itself a vehicle for securing oil concessions and mining rights. As Richard Behar wrote in a 2008 article in Fast Company, China finances “hospitals, water pipelines, dams, railways, airports, hotels, soccer stadiums, parliament buildings — nearly all of them linked, in some way, to China’s gaining access to raw materials.” The Rand Corporation study referenced above similarly suggested that China “gets an expanded supply of resource commodities expected as payback” for its aid. A 2009 Congressional Research Service report concluded: “China’s foreign aid is driven primarily by the need for natural resources.”

The fifth and final myth is that China has an insatiable appetite for African land, and perhaps even a plan to send groups of Chinese peasants to grow food in Africa that will then be shipped back home. In 2012, the chief economist of the African Development Bank called China the “biggest land grabber” in Africa. One widely circulated story alleged that China had purchased half the farm land in the DRC. Others claimed that Chinese were establishing rural villages across Africa. But in a book published in November, my research team and I examined 60 stories about Chinese agricultural investments, including the one in the DRC. We spent three years doing fieldwork and conducting interviews in over a dozen countries to check the facts — and out of nearly 15 million acres that Chinese companies reportedly acquired, we found evidence of fewer than 700,000 acres. The largest existing Chinese farms were rubber, sugar, and sisal plantations. None were growing food for export to China. And while countries like Zambia now host as many as several dozen Chinese entrepreneurs who grow crops and raise chickens for local markets, we found no villages of Chinese peasants.

Source: Foreign Policy


China's One Belt, One Road (OBOR) Initiative:


At one level, One Belt, One Road has the potential to be perhaps the world’s largest platform for regional collaboration. What does that actually mean? There are two parts to this, the belt and the road, and it’s a little confusing. The belt is the physical road, which takes one from here all the way through Europe to somewhere up north in Scandinavia. That is the physical road. What they call the road is actually the maritime Silk Road, in other words, shipping lanes, essentially from here to Venice. Therefore it’s very ambitious—potentially ambitious—covering about 65 percent of the world’s population, about one-third of the world’s GDP, and about a quarter of all the goods and services the world moves. That is what’s at the core of this—at least a potential trading route. The belt, the physical road, and the maritime Silk Road would re-create the shipping routes that made China one of the world’s foremost powers many, many years ago.

Why is this important now?

Some people have talked about this being the second Marshall Plan. It’s worth recalling that the Marshall Plan, which obviously was at the heart of the regeneration of Europe after the Second World War, was one-twelfth the size of what is being contemplated in the One Belt, One Road initiative.

So the question is the scale. The ambition is enormous, and the sums of money are equally enormous. That is why I think whether this initiative is successful will have two parts to it. One will be that the funds are indeed available and that governments are willing to deploy them.

The second is that the money can actually be deployed wisely. There is a real risk that this becomes a source of funding that gets mis- deployed and doesn’t end up contributing to greater trade or greater economic collaboration but just gets wasted on projects that really should never have been funded in the first place.

It sounds like it’s a great concept, but it’s really far from becoming a reality. Can you elaborate on some of the challenges, such as funding and financing?

I think the skepticism around whether this could be delivered has been at least partially allayed by looking at what’s already been achieved. Maybe let’s turn to the funding side and talk about that for a moment. The Asian Infrastructure Investment Bank (AIIB) has come into being.

There were lots of questions around whether that would happen. It’s $100 billion, the funding of which China provides somewhere between one-third and one-half, depending on how you look at it. That’s happened. Its governance is still being debated. But interestingly the governance model seems to have become a bit more transparent, a bit more recognized by the European powers that are involved than had initially been expected. So you tick one box and say that’s progress.

The Silk Road Fund has also come into being. Again, we’ll see how that unfolds. But that’s somewhere around $40 billion of investment. There were probably some bets around whether that would happen.


Source: www.mckinsey.com

Evaluating China-Pakistan Economic Corridor (CPEC)


Viewing CPEC solely from the prism of the quantum of envisaged investment it will bring, as the government is doing, is wrong and misleading, however. There are a number of facets of this mega-project that merit a closer examination to be able to determine if it will ultimately generate economic benefits for Pakistan, as opposed to perceived strategic pay-offs for the two allies. In fact, a proper economic evaluation will need to arrive at the following conclusion: do the benefits outweigh the costs?

To arrive at an answer, the most fundamental aspect that needs to be studied is whether the proposed China-Pakistan Economic Corridor will truly be an ‘economic’ corridor, or will it be a string of strategically important roads and a bunch of power projects. An economic corridor [sic] “connects hubs or nodes of economic activity along a defined geography” (Asian Development Bank).

Hence, an empty road through a barren landscape connecting strategically important point A with strategically important point B 3,000 kilometres away does not fit the description. To be truly an economic corridor, the envisaged roads will need to connect demand (markets) with supply (production centres and clusters). The markets as well as production centres can be pre-existing ones, or new ones that will spring up as the ‘network effects’ of the economic corridor take root. An example of the latter could be new Special Economic Zones (SEZs) set up in different parts of the country to catalyse economic activity and exports.

The new markets and production clusters may fall within the domestic geography, as in opening up previously economically unconnected regions of Pakistan; or these may be external, as in providing Pakistani businesses access to Chinese markets, and vice versa. Another beneficial aspect that could develop over a period of time is for a regional value chain to develop between China and Pakistan, whereby different components and parts of a product are manufactured in each country before being given final shape and exported to regional markets via the closest shipping point — Gwadar in this case.

Needless to say, if the CPEC can eventually be a major backbone or ‘highway’ for wider regional connectivity between South, West and Central Asia, its potential economic benefits will be that much larger.

An important consideration in planning and executing the CPEC should be the effect on Pakistan’s exports. If the CPEC fails to give a quantum boost to the country’s exports, it will have failed to achieve a major aim. While externalities will come into play as the dynamic unleashed by a properly developed and functioning economic corridor takes hold, engendering new businesses and economic activities of which many will be in the export sector, the CPEC will generate two-way trade. Hence, Pakistan’s imports will rise as well. While some part of the increase in imports will be trade diversion, in effect a shifting of imports from one source country to another with a neutral effect on the balance of payments, a net rise in the import bill should be expected as land connectivity with China improves (especially under the operation of a Free Trade Agreement).

A net increase in the import bill will only be a small part of the problem. Most of the envisioned projects will incur liabilities in foreign exchange (for capital and fuel imports, debt servicing, profit repatriation and wages), while their earnings will be in rupees; the currency mismatch, unless offset by a strong jump in exports, could prove to be a large drag on the country’s balance of payments position.

The potential pressure on the external account can be mitigated, however, through some smart negotiations. Contracts signed with Chinese companies under the CPEC should emphasise the maximum possible use of local labour and maximum possible local procurement. This will generate larger employment opportunities for locals and greater economic activity for domestic businesses. Another stratagem could be the negotiation of a follow-on, and larger, currency swap arrangement whereby Pakistan gets to pay in rupees rather than in US dollars or renminbi.

Unfortunately, ‘smart negotiations’ do not appear to be a forte of the government — nor a primary interest. As demonstrated by the LNG import project, other considerations combined with a lack of basic capacity hobble the ability of the government to get the best deal for the country. The government’s capacity to plan, coordinate and execute projects is at a seriously low ebb, and the lack of institutional reform is showing up in our inability to implement initiatives.

With new SEZs a central part of the economic corridor, it is useful to consider how many Pakistan has been able to set up since 2007 — virtually none under a proper SEZ framework. (Several years after its launch, the so-called ‘Garment City’, the Punjab government’s flagship industrial project, is nowhere on the ground.)

Beyond governmental capacity, another daunting challenge projects under the CPEC will face is availability of local financing. Even if external financing is fully arranged, the CPEC portfolio will have a substantial local financing component. With the government unable to credibly broaden the tax base, its ability to provide funds for development spending is seriously constrained. In addition, the failure to reform public finances also means that the government borrows most of the available credit from the banking system — leaving little or no room for financing of private infrastructure projects.

If, despite the odds, the CPEC can be structured and operationalised as a truly networked economic corridor, its benefits for Pakistan will no doubt be enormous. If, however, it ends up primarily as a bilateral strategic project, the economic costs could be substantial.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Source: dawn.com

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“What we need in this country today is more courage and more belief in the things that we have.”- Thomas J. Watson